Will GM's Next Car Have What It Takes?

Since recovering its footing after its high-speed bankruptcy overhaul in 2009, General Motors (NYSE: GM  ) has been solidly profitable -- but its profits have so far fallen well short of those booked by its giant global peers Toyota (NYSE: TM  ) and Volkswagen (NASDAQOTH: VLKAY  ) .

GM sells more cars than VW and almost as many as Toyota, but its bottom-line results haven't been in the same league as either -- a trend that is expected to continue when the General reports its full-year 2012 results later this week.

There are lots of reasons for GM's relatively dismal profitability, and GM CEO Dan Akerson and his team are pushing to address most of them.

One in particular that will be getting more attention shortly: A much-needed overhaul of GM's storied but tattered luxury brand, Cadillac.

Cadillac is crucial to GM's revival
Over the weekend, GM executives speaking to Cadillac dealers at a conference said the company is targeting a 35% year-over-year retail sales increase for Cadillac in 2013.

That's a big jump, but it's critical to GM's drive to increase profit. The 2013 target is part of an ongoing push to establish Cadillac as a global peer to powerhouse luxury brands like VW's Audi and Toyota's Lexus, especially in markets like China, where Ford  (NYSE: F  ) is beginning a similar push with its own luxury brand, Lincoln.

In a nutshell, here's why Cadillac is crucial to GM's revival: Margins on luxury cars are much higher than those on mainstream vehicles. A healthy luxury brand can account for an outsized share of an automaker's earnings. For instance, Audi represents a small fraction of VW's global sales but accounts for nearly half of the company's global profits.

GM would dearly love a piece of that action. As part of its Cadillac push, GM plans a slew of new models. Those plans have already yielded positive results: The acclaimed XTS and ATS sedans were launched in 2012.

Joining them soon is an all-new version of the midsize CTS, the best seller among Cadillac's cars. Cadillac's marketing chief, Don Butler, told trade magazine Automotive News that the new CTS would make its debut at next month's New York Auto Show and would arrive at dealers this fall.

That's important. Here's why.

This new Cadillac is really important
The current CTS was launched in 2008, and it's a good car -- arguably the best product of pre-bankruptcy GM. It's solid and comfortable, with a well-done interior and good handling.

The CTS was unveiled to mostly good reviews. But at the time of its debut, the CTS fell a little short of the cars GM was hoping it would compete with -- no-excuses rides like BMW's 5 Series and the Mercedes-Benz E-Class. That gap has widened in recent years as BMW and Mercedes have pushed the bar higher while GM, attending to other priorities, has made few changes to the CTS.

Put simply, the new car can't do that. The new CTS is expected to be somewhat bigger than the current car -- which is a little cramped compared to the competition -- and share a suspension design and some underpinnings with the ATS, which has been widely lauded for its handling.

Those are good things. But as with the ATS last year, the execution of the new CTS has to be faultless -- if the car is to be taken seriously around the world as a rival to the 5 Series, the E-Class, and Audi's A6.

Another must-watch GM launch
As with last year's launch of the smaller ATS sedan, the new CTS will be closely watched as a gauge of GM's efforts to turn Cadillac into a "no excuses" brand worthy of comparison with the likes of Audi and BMW. The ATS' debut came with a simple yet huge question: Could GM really build a car good enough to challenge the BMW 3 Series, widely regarded as one of the best cars made?

The answer to that question turned out to be an emphatic (and surprising) yes.

If Cadillac's revival is to continue to gather steam, the new CTS has to be an equally emphatic statement.

It's true that decades of mismanagement of General Motors led to a painful bankruptcy in 2009, but it emerged a leaner, stronger company. GM's turnaround, however, is still a work in progress. Investors around the world are wondering whether GM has what it takes to reclaim its former glory. To help you sort fact from fiction, I've put together a brand-new premium research report telling you what you really need to know about GM and its turnaround. If you own or are thinking about owning GM, then you don't want to miss this report. Click here now to get started.


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